QN=1 (1603) (17135) The business cycle is measured by the

a. (i) production of goods and services.

b. (ii) number of people employed.
c. (iii) the interest rate.
d. both (i) and (ii).

QN=2 (1605) (17134) The term used to describe a situation in which markets do not allocate
resources efficiently is
a. economic meltdown.
b. market failure.
c. equilibrium.
d. the effect of the invisible hand.

QN=3 (1631) (17143) The marginal benefit John gets from eating a fourth cheeseburger at a picnic is
a. the total benefit John gets from eating four cheeseburgers minus the total benefit
John gets from eating three cheeseburgers.
b. the same as the total benefit of eating four cheeseburgers.
c. less than the marginal cost of eating the fourth cheeseburger since he chose to eat the
fourth cheeseburger.
d. the total benefit John gets from eating five cheeseburgers minus the total benefit John
gets from eating four cheeseburgers.

QN=4 (1654) (17157) Suppose an economy produces two goods, food and machines. This economy
always operates on its production possibilities frontier. Last year, it produced 50 units
of food and 30 machines. This year it experienced a technological advance in its
machine-making industry. As a result, this year the society wants to produce 55 units
of food and 30 machines. Which of the following statements is correct?
a. Because the technological advance occurred in the machine-making industry, it will
not be possible to increase food production without reducing machine production
below 30.
b. Because the technological advance occurred in the machine-making industry,
increases in output can only occur in the machine industry.
c. In order to increase food production in these circumstances without reducing machine
production, the economy must reduce inefficiencies.
d. The technological advance reduced the amount of resources needed to produce 30
machines, so these resources could be used to produce more food.

QN=5 (1662) (17158) When economists attempt to simplify the real world and make it easier to
understand they make
a. assumptions.
b. mistakes in judgment.
c. predictions.
d. evaluations.

QN=6 (1644) (17183) A model can be accurately described as a

a. theoretical abstraction with very little value.
b. device that is useful only to the people who created it.
c. realistic and carefully constructed theory.
d. simplification of reality.

QN=7 (1687) (17196) In a market economy, supply and demand determine

a. both the quantity of each good produced and the price at which it is sold.
b. the quantity of each good produced, but not the price at which it is sold.
c. the price at which each good is sold, but not the quantity of each good produced.
d. neither the quantity of each good produced nor the price at which it is sold.

QN=8 (1690) (17194) Other things equal, when the price of a good falls, the
a. quantity demanded of the good decreases.
b. supply decreases.
c. quantity supplied of the good decreases.
d. demand increases.

QN=9 (1683) (17198) In a competitive market, the quantity of a product produced and the price of
the product are determined by
a. (i) buyers.
b. (ii) sellers.
c. (iii) both buyers and sellers.
d. None of (i), (ii), and (iii) is correct.

QN=10 (1734) (17263) Scenario 5-1

The supply of aged cheddar cheese is inelastic and the supply of bread is elastic. Both
goods are considered to be normal goods by a majority of consumers. Suppose that a
large income tax increase decreases the demand for both goods by 10%.

Refer to Scenario 5-1. The price elasticity of supply for aged cheddar cheese could be
a. -1.
b. 0.
c. 0.5.
d. 1.5.

QN=1 (17261) Refer to Figure 5-12. Over which range is the supply curve in this figure the most elastic?
1
(1735)
a. Between $16 and $40
b. Between $40 and $100
c. Between $100 and $220
d. Between $220 and $430

QN=12 (1733) (17230) A decrease in supply, which is a leftward shift of the supply curve, will cause
the largest increase in price when
a. both supply and demand are inelastic.
b. both supply and demand are elastic.
c. demand is elastic and supply is inelastic.
d. demand is inelastic and supply is elastic.

QN=13 (1764) (17298) Suppose sellers of liquor are required to send $1.00 to the government for
every bottle of liquor they sell. Further, suppose this tax causes the price paid by
buyers of liquor to rise by $0.60 per bottle. Which of the following statements is
correct?
a. (i) The effective price received by sellers is $0.40 per bottle less than it was before the
tax.
b. (ii) Sixty percent of the burden of the tax falls on sellers.
c. (iii) This tax causes the demand curve for liquor to shift downward by $1.00 at each
quantity of liquor.
d. All of (i), (ii), and (iii) are correct.
QN=14 (1749) (17229) Knowing that the demand for wheat is inelastic, if all farmers voluntarily did
not plant wheat on 10 percent of their land, then
a. consumers of wheat would buy more wheat.
b. wheat farmers would suffer a reduction in their total revenue.
c. wheat farmers would experience an increase in their total revenue.
d. the demand for wheat would decrease.

QN=15 (1773) (17281) In the housing market, rent controls cause quantity supplied to
a. fall and quantity demanded to fall.
b. fall and quantity demanded to rise.
c. rise and quantity demanded to fall.
d. rise and quantity demanded to rise.

QN=16 (1747) (17232) A key determinant of the price elasticity of supply is the
a. number of close substitutes for the good in question.
b. definition of the market.
c. length of the time period.
d. extent to which buyers alter their quantities demanded in response to changes in their
incomes.

QN=17 (1746) (17241) The flatter the demand curve through a given point, the
a. greater the price elasticity of demand at that point.
b. smaller the price elasticity of demand at that point.
c. closer the price elasticity of demand will be to the slope of the curve.
d. greater the absolute value of the change in total revenue when there is a movement
from that point upward and to the left along the demand curve.

QN=18 (1748) (17242) When the price of a good is $5, the quantity demanded is 120 units per month;
when the price is $7, the quantity demanded is 100 units per month. Using the
midpoint method, the price elasticity of demand is about
a. 0.55.
b. 1.83.
c. 2.
d. 0.45

QN=19 (1755) (17283) A price floor

a. is a legal minimum on the price at which a good can be sold.
b. is a legal maximum on the price at which a good can be sold.
c. will generally result in a market shortage.
d. will benefit the consumer, but hurt the supplier.
QN=20 (1786) (17276) Suppose the government has imposed a price ceiling on televisions. Which of
the following events could transform the price ceiling from one that is not binding into
one that is binding?
a. Firms expect the price of televisions to fall in the future.
b. The number of firms selling televisions decreases.
c. Consumers' income decreases, and televisions are a normal good.
d. The number of consumers buying televisions decreases.

QN=21 (1805) (17326) Total surplus is

a. equal to producer surplus plus consumer surplus.
b. equal to the total cost to sellers minus the total value to buyers.
c. equal to consumers' willingness to pay plus producers’ cost.
d. greater than the sum of consumer surplus plus producer surplus.

QN=22 (1776) (17280) Refer to Figure 6-2. If the government imposes a binding price ceiling of $8.00
in this market, the result would be a

a. surplus of 20.
b. surplus of 40.
c. shortage of 20.
d. shortage of 40.
QN=23 (1793) (17316) Refer to Figure 7-1. If the supply curve is S, the demand curve is D, and the
equilibrium price is $100, what is the producer surplus?

a. $625
b. $1,250
c. $2,500
d. $5,000

QN=24 (1794) (17345) Producer surplus measures the

a. benefits to sellers of participating in a market.
b. costs to sellers of participating in a market.
c. price that buyers are willing to pay for sellers’ output of a good or service.
d. benefit to sellers of producing a greater quantity of a good or service than buyers
demand.

QN=25 (1823) (17331) 2. Refer to Figure 7-15. If the price decreases from $22 to $16 due to a
shift in the supply curve, consumer surplus increases by
a. $120.
b. $360.
c. $480.
d. $600.

QN=2 (17385) Refer to Figure 10-7. To internalize the externality in this market, the government should
6
(1844)
a. impose a tax on this product.
b. provide a subsidy for this product.
c. forbid production.
d. produce the product itself.

QN=27 (1827) (17307) Which tools allow economists to determine if the allocation of resources
determined by free markets is desirable?
a. profits and costs to firms
b. consumer and producer surplus
c. the equilibrium price and quantity
d. incomes of and prices paid by buyers

QN=28 (1855) (17376) Which of the following statements is not correct?

a. Government policies may improve the market's allocation of resources when negative
externalities are present.
b. Government policies may improve the market's allocation of resources when positive
externalities are present.
c. A positive externality is an example of a market failure.
d. Without government intervention, the market will tend to undersupply products that
produce negative externalities.
QN=2 (17365) Refer to Figure 10-6. How large would a corrective tax need to be to move this market from
9 the equilibrium outcome to the socially-optimal outcome?
(1862)

a. An amount equal to P’ minus P.

b. An amount equal to P’.
c. An amount equal to P.
d. An amount equal to the external cost.

QN=30 (1852) (17358) The "invisible hand" leads a market to maximize

a. producer profit from that market.
b. total benefit to society from that market.
c. both equity and efficiency in that market.
d. output of goods or services in that market.

QN=31 (1909) (17425) The sign on a church in your neighborhood reads “All are welcome at Sunday
Service.” Because the church has limited seating and is usually full, the Sunday Service
is
a. a private good.
b. a public good.
c. a natural monopoly.
d. a common resource.

QN=32 (1892) (17409) An overcrowded beach is an example of

a. a positive externality.
b. a Tragedy of the Commons.
c. an environmentally inefficient allocation of resources.
d. an economically unfair allocation of resources.

QN=33 (1886) (17417) If the government decides to build a new highway, the first step would be to
conduct a study to determine the value of the project. The study is called a
a. fiscal analysis.
b. monetary analysis.
c. welfare analysis.
d. cost-benefit analysis.

QN=34 (1946) (17444) Which of the following costs would be regarded as an implicit cost?
a. the cost of accounting services
b. the opportunity cost of financial capital that has been invested in the business
c. the cost of compliance with government regulation
d. all costs that involve outlays of money by the firm

QN=3 (17431) Table 13-13

5 Consider the following table of long-run total cost for four different firms:
(1922)
Refer to Table 13-13. Which firm has diseconomies of scale over the entire range of output?

a. Firm 1
b. Firm 2
c. Firm 3
d. Firm 4

QN=36 (1938) (17446) Which of the following measures of cost is best described as "the increase in
total cost that arises from an extra unit of production?"
a. variable cost
b. average variable cost
c. average total cost
d. marginal cost

QN=37 (1957) (17435) Economists normally assume that the goal of a firm is to
(i) sell as much of their product as possible.
(ii) set the price of the product as high as possible.
(iii) maximize profit.
a. (i) and (ii) are true.
b. (ii) and (iii) are true.
c. only (iii) is true.
d. (i) and (iii) are true.

QN=38 (1976) (17498) The production decisions of perfectly competitive firms follow one of the Ten
Principles of Economics, which states that rational people
a. consider sunk costs.
b. equate prices to the average costs of production.
c. will eventually leave markets that experience zero profit.
d. think at the margin.

QN=39 (1977) (17495) Which of the following is not a characteristic of a perfectly competitive
market?
a. Firms are price takers.
b. Firms can freely enter the market.
c. Many firms have market power.
d. Goods offered for sale are largely the same.

QN=40 (2017) (17560) A perfectly price-discriminating monopolist is able to

a. maximize profit and produce a socially-optimal level of output.
b. maximize profit, but not produce a socially-optimal level of output.
c. produce a socially-optimal level of output, but not maximize profit.
d. exercise illegal preferences regarding the race and/or gender of its employees.

QN=41 (1991) (17500) Suppose a firm operates in the short run at a price above its average total cost
of production. In the long run the firm should expect
a. (i) new firms to enter the market.
b. (ii) the market price to fall.
c. (iii) its profits to fall.
d. All of (i), (ii), and (iii) are correct.

QN=42 (2004) (17490) For a certain firm, the 100th unit of output that the firm produces has a
marginal revenue of $10 and a marginal cost of $11. It follows that the
a. production of the 100th unit of output increases the firm's profit by $1.
b. production of the 100th unit of output increases the firm's average total cost by $1.
c. firm's profit-maximizing level of output is less than 100 units.
d. production of the 110th unit of output must increase the firm’s profit by less than $1.

QN=43 (2031) (17523) During the holiday season, high-end retailers frequently place a high price on
merchandise on weekends and discount the price during the week. They do this
because they believe that two groups of customers exist: shoppers with little free time
and bargain hunters. Bargain hunters have time to shop around and frequently shop
during the week. What do economists call this price strategy used by high-end
retailers?
a. oligopoly
b. price discrimination
c. compensating differential
d. in-kind transfers

QN=44 (2055) (17572) Binding agreements concerning production levels between oligopolists can
lead the involved firms to
a. monopoly profit.
b. lower prices and more profit.
c. bankruptcy.
d. higher prices and less profit.

QN=45 (2045) (17538) If one were to compare a competitive market to a monopoly that engages in
perfect price discrimination, one could say that
a. in both cases, total social welfare is the same.
b. total social welfare is maximized in the competitive market, but not in the perfectly
discriminating monopoly.
c. in both cases, some potentially mutually beneficial trades do not occur.
d. consumer surplus is the same in both cases.

QN=46 (2095) (17600) Suppose that Sonny and Cher are duopolists in the music industry. In January,
they agree to work together as a monopolist, charging the monopoly price for their
music and producing the monopoly quantity of songs. By February, each singer is
considering breaking the agreement. What would you expect to happen next?
a. Sonny and Cher will determine that it is in each singer’s best self interest to maintain
the agreement.
b. Sonny and Cher will each break the agreement. The new equilibrium quantity of songs
 will increase, and the new equilibrium price will decrease.
c. Sonny and Cher will each break the agreement. The new equilibrium quantity of songs
will decrease, and the new equilibrium price will increase.
d. Sonny and Cher will each break the agreement. The new equilibrium quantity of songs
will increase, and the new equilibrium price also will increase.

QN=47 (2170) (17701) Suppose a consumer spends his income on CDs and DVDs. If his income
decreases, the budget constraint for CDs and DVDs will
a. shift outward, parallel to the original budget constraint.
b. shift inward, parallel to the original budget constraint.
c. rotate outward along the CD axis because he can afford more CDs.
d. rotate outward along the DVD axis because he can afford more DVDs.

QN=48 (2106) (17619) Entry by new firms into a monopolistically competitive market
a. (i) creates new consumer surplus.
b. (ii) imposes a positive externality on existing firms.
c. (iii) leads to the same externalities that are observed when new firms enter a perfectly
competitive market.
d. All of (i), (ii), and (iii) are correct.

QN=49 (2080) (17588) One characteristic of an oligopoly market structure is:

a. firms in the industry are typically characterized by very diverse product lines.
b. firms in the industry have some degree of market power.
c. products typically sell at a price equal to their marginal cost of production.
d. the actions of one seller have no impact on the profitability of other sellers.

QN=50 (2078) (17596) Refer to Figure 16-4. Which of the graphs depicts a short-run equilibrium that
will encourage the exit of some firms from a monopolistically competitive industry?
a. panel (a)
b. panel (b)
c. panel (c)
d. panel (d)
[id=1603, Mark=1]1. D

[id=1605, Mark=1]2. B

[id=1631, Mark=1]3. A

[id=1654, Mark=1]4. D

[id=1662, Mark=1]5. A

[id=1644, Mark=1]6. D

[id=1687, Mark=1]7. A

[id=1690, Mark=1]8. C

[id=1683, Mark=1]9. C

[id=1734, Mark=1]10. C

[id=1735, Mark=1]11. A

[id=1733, Mark=1]12. A

[id=1764, Mark=1]13. A

[id=1749, Mark=1]14. C

[id=1773, Mark=1]15. B

[id=1747, Mark=1]16. C

[id=1746, Mark=1]17. A

[id=1748, Mark=1]18. A

[id=1755, Mark=1]19. A

[id=1786, Mark=1]20. B

[id=1805, Mark=1]21. A

[id=1776, Mark=1]22. C

[id=1793, Mark=1]23. C

[id=1794, Mark=1]24. A

[id=1823, Mark=1]25. B

[id=1844, Mark=1]26. B

[id=1827, Mark=1]27. B

[id=1855, Mark=1]28. D

[id=1862, Mark=1]29. D
[id=1852, Mark=1]30. B

[id=1909, Mark=1]31. D

[id=1892, Mark=1]32. B

[id=1886, Mark=1]33. D

[id=1946, Mark=1]34. B

[id=1922, Mark=1]35. C

[id=1938, Mark=1]36. D

[id=1957, Mark=1]37. C

[id=1976, Mark=1]38. D

[id=1977, Mark=1]39. C

[id=2017, Mark=1]40. A

[id=1991, Mark=1]41. D

[id=2004, Mark=1]42. C

[id=2031, Mark=1]43. B

[id=2055, Mark=1]44. A

[id=2045, Mark=1]45. A

[id=2095, Mark=1]46. B

[id=2170, Mark=1]47. B

[id=2106, Mark=1]48. A

[id=2080, Mark=1]49. B

[id=2078, Mark=1]50. B